LPN Development

LPN Development Plc (LPN)
 

What’s new? LPN announced that its June 21-24 promotion for unsold existing units (details in our June 12 report) achieved Bt1.8bn in presales, a 36% take-up rate of its Bt5bn inventory (from six projects). Also, on June 24, the firm launched Lumpini Park Rattanathibet (Bt4bn). The project was 68% booked (Bt2.7bn). Including the soft launch of a new project at Prachachuen, presales last week were Bt5bn.
Comment: The response to the promotional sale of unsold units was far below both our expectation (a 50% take-up rate) and LPN’s target (70-80%). Given Bt1.8bn in presales from the promotion, we assume that Bt1.7bn will be recognized revenue in 3Q-4Q12. Thus, 96% of our FY12 top-line forecast of Bt13.7bn is now secured. The rest, Bt120m in presales (from Lumpini Ville Sukhumvit 109) will transfer in 1Q13.
LPN postponed transferring Lumpini Ville Sukhumvit 109 (Bt940m; 73% booked) to 1Q13 from 4Q12, as its current backlog almost fully secures its FY12 revenue target of Bt13bn. For FY13, the firm has Bt7.8bn in presales, equal to 52% of our revenue forecast.
The average take-up rate of 68% for Lumpini Park Rattanathibet was strong because of the good location—very close to a Purple Line station. The project will contribute revenue in 2H14 (30% of our FY14 top-line forecast). We expect good GM for the project of above 30%, due to the cheap land cost (Bt379m—equal to 9.5% of project value).
In 2Q12, LPN should post presales of Bt6.2bn, growth of 39% YoY and 28% QoQ.
Action: Although our long-term BUY rating stands (due to the firm’s clear earnings visibility), we expect its share price to underperform peers in the short-term for the following reasons: 1) LPN doesn’t match with our low-rise home demand recovery theme, 2) 2Q12 results will underperform the sector (down sharply both YoY and QoQ for LPN against mixed YoY and QoQ comparisons for peers), 3) a slow HoH presales outlook for 2H12 (Bt11bn in 1H12 versus Bt6-7bn in 2H12) and 4) high multiples—an FY12 PER of 11x (a 7.8x FY05-11 mean). We expect the stock to perform again in Sept, when the bulk of its backlog starts transferring (record profit in 4Q12).